Vendor reconciliation: What is it and how to do it
Want to know one of the simplest ways to boost your bottom line? Take a closer look at your vendor payments — you may be paying too much without even knowing it. We help small business owners save thousands each year just by getting their vendor reconciliation right. While it might sound complicated, vendor reconciliation is really just making sure what you're being billed matches what you're paying.
What is vendor reconciliation?
Vendor reconciliation is the process of comparing what vendors say you owe them (their invoices) with what you've actually paid (your payment records). This includes matching up purchase orders, receiving documents, invoices, and payment records to ensure everything lines up correctly.
Why you can't afford to skip this step
Vendor reconciliation isn't just busy work — it's protecting your bottom line. Here's why it matters:
It helps catch billing errors before they become expensive problems.
It prevents duplicate or overpayments that tie up your cash flow.
It ensures you're getting all your negotiated discounts and terms.
It helps maintain good relationships with your vendors.
It makes tax time much less stressful.
How to reconcile vendor accounts
Here's our step-by-step process for effective vendor reconciliation:
Gather your documents:
All vendor statements
Your accounts payable records
Purchase orders
Receiving documents
Payment records
Bank statements
2. Compare the details:
Match invoice amounts to purchase orders.
Verify delivery receipts align with what was ordered.
Check that payments made match invoice amounts.
Confirm payment dates match your records.
3. Note any discrepancies:
Create a list of differences that need investigation.
Flag missing documentation.
Highlight unusual charges or unexpected fees.
Common mistakes we see
After working with hundreds of small businesses, we've noticed some recurring pitfalls — and their costly consequences:
Waiting too long between reconciliations — monthly is the minimum. When you wait too long, small errors snowball into major discrepancies that can take days or weeks to unravel and can cost you thousands in overpayments.
Not keeping organized records of purchase orders and receipts. Without proper documentation, you might end up paying for items you never received or missing out on returns and credits you're owed.
Assuming the vendor is always right about charges and fees. This blind trust can lead to years of overcharges.
Failing to follow up on discrepancies quickly. The longer you wait, the harder it becomes to dispute charges, and many vendors have 30-60 day limits on billing adjustments.
Not having a system for tracking partial payments or installment plans. This can lead to double payments or even damage vendor relationships when payments are missed.
When it's time to get help
If you only have a few vendors, vendor reconciliation can be pretty manageable. You might need professional assistance if:
You're dealing with more than 20 regular vendors.
You're finding frequent discrepancies you can't explain.
Your vendor relationships are becoming strained over payment disputes.
You're spending more than a few hours each week on reconciliation.
Your business is growing faster than your bookkeeping system can handle.
Remember, spending too much time on bookkeeping tasks means you're not spending enough time growing your business. Archer Lewis is here to help when it’s time to call in the pros. Learn more about our small business accounting services and see how we can take vendor reconciliation off your plate to get you back to doing what you do best — growing your business.